Euphoria and Despair -- By: Bill Kraft
Copyright 2008, CutLoss, Inc., All Rights Reserved
Bill Kraft
Editor |
The markets have certainly been on a wild ride this year. The Dow
Industrials, for example, dropped 5250 points from the intra-day high in
May to the intra-day low on October 10th. The Nasdaq Composite and the
S&P 500 suffered similarly. Many traders and the investing public have
taken a very disheartening ride. The other night on the local TV news,
one station devoted a segment to the stress people have undergone as a
result of this fall. Some, it was reported, had even considered
suicide. We've gone from contentment to despair and then, on Monday,
when the Dow jumped over 900 points, to euphoria at least for the moment.
As those of you who have been following these articles and who have
read my book, "Trade Your Way to Wealth" , know, I have not been an
advocate of buy and hold. It is times like these that have led me to
conclude that I don't want to be holding throughout a downdraft like
what we have seen in recent months. I have long argued for establishing
an exit strategy before ever entering a position. Unless we do have
such a strategy in place, how are we going to cut our losses?
Successful traders make money by cutting losses and letting profits
run. Letting losses run is painful and does little to advance the ball.
I have received comments on the blog from writers who have said
that the only way to make money in the markets is buy and hold.
Nonsense. If a stock drops 50%, it must move up 100% just to get back
to even. Why hold through a 50% drop? Various traders suggest various
ways to formulate an exit strategy. Some suggest exiting on a drop of
5% or 8%, others may use a break through a trend or a price support.
There are many good ways to set an exit strategy, but for me the
important thing is to have one. What is the exit strategy for buy and
hold?
I personally prefer exits based upon the violation of some technical
line. Fundamentals can be very helpful in choosing investment
candidates, but they provide little help as far as I am concerned in
telling us when to enter and when to exit. A while back, a subscriber
wrote that he sees no problem using fundamentals to exit; he exits when
there is "a change in the fundamentals." I guess I don't know how he
does that. What change in fundamentals? Is there an exit when the
price goes up? That would create a change in the P/E ratio since it
would get higher as the price rose and a higher P/E generally signifies
a different value than a lower P/E. How about if the Treasurer of the
company resigns? That is a change in fundamentals. Does that signify
an exit? What if the company takes out a new loan? That is a change in
fundamentals. Is that a reason to exit?
Each of those examples demonstrates a change in fundamentals.
Whether it is reason to exit or not becomes a subjective judgment and
once subjectivity is a part of the decision, emotions come into play.
Emotions play havoc with trading. Just look at what we have seen
recently. On Friday, October 10th, their was a huge drop in the markets
fueled by despair. The sky was falling. There was no hope for world
economy. On Monday, after some major efforts to unlock the credit
markets, euphoria prevailed and the markets soared. When we are making
subjective judgments, we can fall victim to these emotions. If, on the
other hand, we can use some objective discipline like a break through a
price support or resistance, we are not letting that emotional pull rule
our trades.
Over the past few years I have received a number of calls and
emails asking that I give more seminars or recommend some that I
consider to be worthwhile. I have steadfastly avoided giving any more
seminars because they take a lot of time in preparation and are quite a
lot of work. I have been happy with my trading, limited coaching, and
writing. Last week, I finished my second book with John Wiley & Sons,
the publisher. It will be out shortly after the first of the year. I
now have some more free time and I am considering doing another seminar
if there is sufficient interest. I would ask those of you who might
have a serious interest in attending a seminar with me to indicate your
interest in a comment on the blog.
If I do another seminar, it will be in Scottsdale, Arizona over a
weekend in late February or early March. I am thinking of making
presentations from mid-morning on Saturday to dinner time and then an
hour or so after dinner. On Sunday, I would expect to go from about 9:30
in the morning until about 4:00 in the afternoon. Attendees should have
some basic knowledge of investing in general. I am thinking about
discussing strategies, exits, and hedges on the first day and devoting
most of the second day to developing and enforcing trading discipline
through technical analysis (no experience necessary on the part of
participants). The cost for the two day seminar would be $3,000 and
those traveling more than 50 miles would receive a discount of $500 to
help reimburse travel expenses. The price would include a spouse or
significant other. I will only do the seminar if at least 15
participants commit and pre-pay 1/2 no later than 45 days before the
actual date. I will limit the total number (including spouses or
significant others) to 60. The seminar would take place at a resort
where I have been assured of discounted room charges provided we meet
the minimum number of attendees. I am only offering this opportunity
to free Newsletter subscribers and to paid subscribers to the services.
The paid subscribers will receive an additional $400 discount in
addition to the travel discount.
That's it. Please respond on the "blog" *only* if you are seriously and
genuinely interested. If there seems to be enough interest, we'll set
up something so that you can make your reservations soon for a great
time in Scottsdale later this winter.
Good Trading!
Bill Kraft
Success Trading Group -- by the Success Trading Group Team
Our Success Trading service delivers quality trading ideas for the elite investor that has the financial wherewithal and market nimbleness to profit on small moves in a stock's price. Become a member and you will be provided with email and/or PDA alerts intended to provide you with the opportunity to make many, many profitable trades.
Trade Quality
Stocks Over and Over Again
Over 320 winning trades and only 9 losses!
Register Now
and Get $50 off our Normal Website Rate
Option Trader -- by Bill Kraft
Our Option Trading Service is for conservative traders that understand leverage principles and enjoy the challenge of options trading. We focus on powerful option trading strategies that place volatility and momentum in your favor. And we pride ourselves on always minimizing our losses!
The Option Trader service utilizes standard trading in Puts and Calls as well as strategies using Leaps, Straddles, Credit Spreads, Calendar Spreads, and Naked Puts. But no matter how sophisticated a strategy may be, we ALWAYS know our downside potential on every trade.
Here's a look at a trade Bill is currently working on:
Ultra Financials ProShares (UYG)
I'm looking at a $1 put credit spread with the possibility
of a 50%+ return on risk by November expiration on November 14. Selling
the Nov $10 puts and buying the $9 puts at a 35 cent credit would leave
a 65 cent maximum risk provided no adjustments were made. UYG is high
risk so I would approach the trade with caution.
Good Trading!
Bill Kraft
Try our Option Trader Real-Time Alert Service
and Get $50 off our Normal Website Rate!
Achieve returns with us like
16.48% return in 5 days!
Trend Trader -- by Bill Kraft
Trend trading as we try to practice it is a form of momentum trading. We prefer to try to capture profit out of the middle of the trend rather than try to catch reversal at bottoms and tops.
Here's a look at a trade Bill is currently working on:
Manitowoc Co. Inc. (MTW)
Trend Trader grabbed a nice 9% return before commission in a
1 day trade this past week on MTW. It looks like it could provide
another opportunity as it closed near a support on the weekly charts.
Good Trading!
Bill Kraft
Try our Trend Trader Real-Time Alert Service
and Get $50 off our Normal Website Rate!
$10 Trader -- by Bill Kraft
We really enjoy trading stocks that are $10 and under. Often they provide the chance to enjoy high percentage gains and, of course, at worst, the risk is limited to what we paid for the stock.
Here's a look at a trade Bill is currently working on:
Anthracite Capital, Inc. (AHR)
AHR has developed a short term uptrend and is trading just
north of a $3 support level. It looks like it might have about a buck
and a half to go before reaching the next resistance level. If it does
make that move from here, it could offer a better than 40% return.
Good Trading!
Bill Kraft
Try our Under $10 Trader Real-Time Alert Service!
Dividend Investor -- by the Dividend Investor Team
Our Dividend Investor service focuses solely on the "best of the best" dividend paying stocks. We attempt to buy these stocks for their powerful dividend producing income; and we will also buy these with a purpose to make capital gains as the stock increases in value. Our Dividend Investor service is a perfect fit for an IRA account.
Register Now
and Get $50 off our Normal Website Rate
